Xstrata CEO Davis Said Ready to Quit After Glencore Takeover

Xstrata Plc Chief Executive Officer Mick Davis is ready to quit the company after a takeover by Glencore International Plc at a price beneficial to shareholders, a person familiar with the situation said today. Photographer: Mark Graham/Bloomberg

Sept. 10 (Bloomberg) -- Xstrata Plc Chief Executive Officer
Mick Davis is ready to quit the company after a $36 billion
takeover by Glencore International Plc at a price beneficial to
shareholders, a person familiar with the situation said.

Chief Financial Officer Trevor Reid also is prepared to
step down provided Glencore makes an offer fair to shareholders
of the mining company, said the person, who asked not to be
identified because the information isn’t public.

Glencore, the owner of 34 percent of Xstrata, last week
raised the amount of stock offered for the rest of the company
by 9 percent, demanding that its CEO Ivan Glasenberg replace
Davis minutes before shareholders were due to vote on what would
be this year’s biggest merger.

“Mick Davis has engendered a lot of goodwill for Xstrata
investors and there would be a strong reaction should he leave
the merged group,” said Tim Schroeders, who holds Xstrata
shares as part of about $1 billion he helps manage at Pengana
Capital Ltd. in Melbourne.

Glencore, based in Baar, Switzerland, two miles away from
Xstrata in Zug, may propose the target’s John Bond becomes
chairman of the new company, said another person with knowledge
of the matter.

Davis has no longer-term role envisioned at the combined
company under the new proposal, said the person, who asked not
to be identified because the information isn’t public. As many
as 20 senior Xstrata executives may leave after the transaction
is completed, the person said.

Bid Premium

Xstrata spoke against the revised bid on Sept. 7, saying in
a statement that the 17.6 percent premium to create the world’s
largest mining company by combining with the commodity trader
was priced “significantly lower than would be expected in a
takeover.”

The premium is less than the average announced premium of
30 percent for all other mining deals valued at more than $5
billion since at least 1999, according to data compiled by
Bloomberg.

Glencore, which trades commodities and owns mines, smelters
and oil wells, is due to make its detailed offer today, the
person said. The company halted its shares from trading in Hong
Kong today ahead a statement.

The revised bid, which values the rest of Xstrata at 22.5
billion pounds ($36 billion), came after Qatar Holding LLC, the
nation’s sovereign wealth fund that holds about 12 percent of
Xstrata, held out against the deal.

The terms were changed after an evening negotiating session
in a London hotel mediated by former U.K. Prime Minister Tony
Blair -- between Glasenberg and Qatar’s premier, said a person
with knowledge of the deal.

Blair’s $1 Million

Blair got about $1 million in fees for attending the three-hour meeting at Claridge’s Hotel in Mayfair, central London,
until after midnight on Sept. 7, the Sunday Times cited people
close to the matter as saying. Since 2008, Blair has been a
senior adviser to JPMorgan Chase & Co., which is advising
Xstrata.

The new offer of 3.05 Glencore shares for each of
Xstrata’s, up from 2.8, includes the option of changing the bid
to a takeover from a so-called scheme of arrangement. That would
reduce the level of acceptances needed to complete a deal to
more than 50 percent, instead of 75 percent. Glencore is barred
from voting its stake in the scheme of arrangement under U.K.
takeover rules.

“Somewhere in excess of three is in the ballpark, it’s
just a question of what premium prevails in terms of making it
still attractive from a Glencore point of view,” Pengana’s
Schroeders said in an interview.

One-Page Plan

Knight Vinke Asset Management, which has a 0.54 percent
stake in Xstrata, yesterday rejected the latest proposal saying
its independent board members should “seek the highest possible
price and invite third party offers,” according to an e-mailed
statement.

Glencore made its one-page proposal of changes a couple of
hours before Xstrata’s shareholders were due to vote on its
original bid on Sept. 7. Glencore’s revised bid came after Qatar
Holding LLC, which holds 12 percent in Xstrata, had sought a
higher price for its stake, saying it would vote against it.

Standard Life Plc, which owns 1.4 percent of Xstrata and
0.8 percent of Glencore, said Sept. 7 it backed the offer. The
company had called for the initial offer to be raised.

‘Significant Risk’

A takeover by Glencore would entitle Davis, 54, to 5.3
million pounds in salary and bonuses and $4.3 million in
retirement benefits, according to the mining company’s annual
report, unless a new payout is agreed to in the revised
proposal. This compares with a retention bonus of 28.8 million
pounds in shares over three years that he had originally been
offered to lead the combined company and achieve cost-saving
targets.

“The intention to replace Mick Davis as CEO and to amend
the management incentive arrangements represents significant
risk around the retention of the Xstrata senior and operational
management,” Xstrata said in its Sept. 7 statement. The company
said it will decide whether to reconvene shareholder meetings
once it gets a detailed proposal.

Glasenberg is prepared to see Davis serve six months as CEO
to help the revised offer win acceptance, the Telegraph
newspaper reported, without saying where it got the information.

Xstrata has also softened its opposition to the change of
management structure recommended in the original offer provided
that the new offer is at the right price, the person said.

Power Sharing

Glencore’s move has threatened the power-sharing agreement
reached by both companies in February, when the then-21.9
billion-pound deal was announced. Davis was to have led the new
company, and Glasenberg would have been deputy CEO. Xstrata
investors, told of the latest proposal as they were arriving at
the Sept. 7 meeting in Switzerland to vote on the deal, must now
wait for more details from the suitor.

Glasenberg, 55, Glencore’s largest shareholder with about
15.7 percent, had repeatedly rebuffed calls to raise his offer,
which was agreed on with Xstrata’s board even as Qatar continued
to build its stake. As recently as Aug. 21, Glasenberg said he
was ready to scrap the deal rather than overpay.

A combination would see Glencore reacquiring, among many
other assets, the mines Xstrata bought a decade ago for $2.5
billion to become the largest thermal coal exporter.